The PopCulteer
March 16, 2018
You may have noticed that PopCult has been largely devoted to toys for the last few weeks. We had the International Toy Fair in New York last month, and this month we’ve been bringing you lots of pre- and post-ToyLanta coverage (with more to come). However, we have to take a moment to talk about the biggest story in the world of the toy industry this week, the not-unexpected impending demise of Toys R Us.
Last year I wrote about the real cause of TRU’s woes. It was not a downturn in sales or competition from Walmart on Amazon. Toys R Us was the victim of a perfecly legal, yet lethal, financial transaction, a leveraged buyout.
In 2005, Bain Capital, a firm that had already systematically destroyed KayBee Toys in exactly the same way, teamed up with two other private equity firms to buy TRU and take it private, and in the process they saddled the company with a debt load that could only be paid off if sales went up and all their competition went out of business.
The surprising part of what happened was that Toys R Us was so big that it took them thirteen years to run the company into the ground, with somewhere between five and eight Billion dollars in debt (reports vary). That’s “Billion” with a “B.” Outside of military contractors, it’s hard to run up a loss that huge.
The most important lesson that should be taken away from this is that, perhaps, the government should consider whether or not the practice of leveraged buyouts should even be legal. I realize that the prevailing philosophy among those currently in power is that all government regulations are bad, but that philosophy is evil and self-serving. We need banking reform and new regulations on Wall Street, and we need to consider banning such predatory financial manuevers as short-selling, derivative trading and leveraged buyouts.
A leveraged buyout, in too many cases, is just the act of a money vampire. Private equity firms borrow money to buy a healthy (or in the case of TRU, a still-viable, but damaged) company and then transfer the debt from that purchase to the company, meaning that they don’t really put out much of their own money, and instantly plunge the company that they just bought into debt. Then they install their own board of directors and high-priced consultants, all of whom get paid before anyone else, and drain as much money as possible out of the company, while not investing any more capital to keep that company competitive.
In the case of Toys R Us, the company had been adrift without competent management since the death of its founder in 1994. The management team that came in after him had no understanding of the toy industry or the original concept of the stores, and hobbled the competitive edge that TRU previously had over everyone else in the field.
The whole reason that TRU was so phenomenally successful was that they were the place to go that carried almost every toy made. That was the attraction. It was costly managing that much inventory, but it was really the only thing that made them different from other toy retailers. In the mid-1990s the new CEO made the decision to drop more than half of the products they carried, and that put a serious dent in their appeal. That was when they started losing market share rapidly to Walmart, Target and KayBee Toys. If KayBee hadn’t been snatched up and destroyed by Bain Capital, they would’ve passed TRU as the top dedicated toy retailer by the year 2000.
So Toys R Us was already in trouble when Bain Capital lazily raised their head from the carcass of KayBee Toys and decided to just go ahead and kill another toy retailer.
And that brings us to where we are now. There is still a tiny glimmer of hope that some of the Toys R Us stores will remain open. I stumbled across a plan late last year that I had to agree to keep quiet about. A group of investors, lead by a toy company executive, approached TRU with a plan to buy their Canadian divsion along with 200 of their top-performing stores and also the Intellectual Property of KayBee Toys. Toys R Us bought the KayBee trademarks and website out of liquidation and still owns them.
The plan would be to rebrand the US stores as KayBee Toys and operate them out from under the unmanageable debt load that was pretty much obviously going to sink the company. I was asked to keep my mouth shut about this plan, which was easy to do. Chances are that it wouldn’t happen. TRU could not continue without their top 200 stores. But there were contingency plans to buy the same assets out of liquidation.
I can talk about this now, because these investors have gone public. The Washington Post reports, “A group of toymakers led by Isaac Larian, chief executive of MGA Entertainment, the giant behind brands such as L.O.L. Surprise!, Little Tikes and Bratz, on Wednesday submitted a bid to buy Toys R Us’s Canadian arm, which includes 82 stores, according to Larian. He added that he is also looking into buying as many as 400 U.S. stores, which he would seek to operate under the Toys R Us name.”
When I accidentally found out about this, even a hint of the plan coming out would jeopardize it. It’s still iffy. They have to get their financing in order and the bankruptcy judge has to determine that their offer will bring in more money than a total liquidation of those particular assets. Right now I’d give this plan less than a fifty percent chance of happening, but I really hope it does.
No “white knight” was going to take on the company’s debt load. Very few people have eight billion dollars laying around, and those that do are more likely to spend that money buying elections than they are to rescue a failing retailer. But a consortium of toy companies would be the best bet for TRU to find a management team that will take them back to their original philosopy of being THE toy store, and would be more intent on making the company work.
The Private Equity firms involved aren’t losing any of their own money on this deal, and they’ve already made tens of millions of dollars in management and consulting fees. To them, even with TRU going into liquidation, this was a profitable deal.
Unless things change rapidly, I wouldn’t expect a ruling from the judge before next week. Toys R Us has announced that they will honor gift cards and rewards points for the next thirty days (probably 28 by the time you read this), and the start date for the liquidation sales has not yet been announced. To your left you see a map of all the remaining TRU stores in the US (courtesy of CNBC).
If a specialized liquidation team is brought in to sell off the inventory, don’t expect any bargains during the first week or two. As anyone who’s been to the St. Albans K Mart can tell you, the first thing they do when they liquidate a store is mark up all the prices to ten or twenty percent more than the suggested list price. Then they discount it from there. In many cases that means that the day before a liquidation sale you can find stuff for less than you will the day after it starts.
It’s not until they get further along that the real bargains will pop up. If you wait until they advertise “50% Off,” you might find some decent discounts from their inflated starting prices.
It’s sad to see Toys R Us come to this, and I really hope that some of the stores can be salvaged, but to those of us who watched what Bain Capital did to KayBee Toys, this was inevitable when they took over TRU back in 2005.
ToyLanta Swag
Just so that this PopCulteer is not a total bummer, I know that you really want to see some more ToyLanta photos, so in this post I’m going to show off what I bought, and tell you a little about the dealers. We’ll kick it all off with this year’s convention exclusive figure, available with the Commander’s Packages, it’s the Descend Into Danger set, featuring work by Cotswold Collectibles, Felipe Monaco and the talented ToyLanta crew.
Bryan Tatum has been creating cool mini-diorama pieces to go along with the convention figures for the past few years, and this year he came up with a really cool radioactive alien scene, complete with a working strobe light…
The folks at 3Rd Son Books always have an impressive spread and can be counted on to make great deals and fun trades…
I was lucky enough to score two great impeccably-tailored Mark Cole uniforms from Steve Stovall, who I will be seeing again at his Kentuckiana GI Joe Show in late July. Steve also curated the unofficial Joelanta Nifty Knock-off Challenge, which I will tell you about later.
I always wind up dropping a ton of money with James Wozniak and Classic Recasts. Each one of these figures pictured below came with a full set of accessories, and I got even more stuff that I haven’t had a chance to photograph yet. The little astronauts with helmets are going to Mark Wolfe…
It’s always cool to see Felipe Monaco, who made his way up to Atlanta from Brazil, where he runs Louco Por Bonecos and makes incredible 1/6 cale outfits and custom figures. I was lucky enough to score a one-of-a-kind Atomic Man in “Bionic” gear, with customized moving eyes and an incredible box. Felipe was the rock star of last year’s show, and provided the outfit for this year’s convention exclusive figure.
On the Saturday of the show, Felipe showed up dressed as DYNAMAN, a Spanish GI Joe imitator that was distributed in Europe and South America. DYNAMAN was one of the more well-made GI Joe knockoffs, with additional figures and accessories that often outshined Hasbro’s official offerings.
The figure below is Mike Power Atomic Man, with a Customized Atomic Man head with real working Eagle Eyes, Cotswold body, red LPB new suit, white shirt and shoes and custom box with original art. You have no idea how many of my fellow collectors wanted to get their hands on this figure. Felipe may make variants in the future, but every one of the custom figures he sold are one-time only editions with custom box are and accessories. I think he could have sold thirty for forty of this one.
I also picked up two of Felipe’s cool retro space men outfits (based on Brazilian “Falcon” figures from the 1980s) plus a different-colored glider outfit and two “Super Joe” style outfits for female figures.
I only picked up one outfit set from 6 Scale USA, but it won’t be the last. These guys do incredible work, and I can’t wait to get this cool SCUBA suit on one of my Adventure Team guys soon. I’ll be seeking them out next year for more.
Sgt. Van’s GI Joe and Fantasy Boxes is Chuck Van Voorhis II, and he does incredible work making reproduction boxes, and really impressive display boxes based on classic GI Joe sets. These display boxes let you show off the figure and store his gear while still letting you see him. I picked up a box for one of my Offiical GI Joe Club figures, and one for one of my favorite Adventure Team sets, plus a cool UK-style box for the Eagle Eyes Land Commander. Last year I snagged a Talking Soldier display box from Chuck, which will soon be the home of my very first, and newly-restored thanks to Scott Wilde, GI Joe.
E.J. White is the mastermind behind the JoeLanta Lobby Swap, which marked its tenth year this year. With the Marriott Century Center undergoing renovations, and their restaurant temporarily residing in the lobby, this year’s Lobby Swap relocated to one of the theater rooms, which actuall worked out great, because sometimes it can get a little hard to hear people in the lobby with the fifteen-story atrium. The noise just goes straight up.
For the last few years, E.J., who is a master kitbasher, has designed a Lobby Swap exclusive figure, and that’s what you see to the left. This year it was a “Lost Squadron of Stone Mountain” figure, assembled with some assistance from Bryan Tatum, Felipe Monaco and Dr. Pamela Harroff.
One of the most cool things about ToyLanta and JoeLanta is the creativity on display. Hasbro has not put much effort into making 12″ GI Joe product for over a decade now, but at ToyLanta this year we had limited edition figures, one-of-a-kind figures, plus playsets and custom accessories from several vendors. In addition to the folsk whose work I’m showing off here, Alan Dawson showed prototypes for his new line, Tommy Atkins the Sixthscale Squaddie, which had many of us screaming at him to just take our money already.
Below you see this year’s ToyLanta debut set from Mattsquatch Customs, featuring a cool painting by David Howard, in the style of the classic Adventrue Team GI Joe box art. Items included are: shirt, pants, boots, ax, walkie-talkie radio (new color), flashlight (new color), map case with new map, binoculars (new color), and featuring a brand new 2-piece rifle and Bigfoot done in classic 70’s adventure style.
Matt had several cool classic GI Joe Accessories recast in new colors. In the photo below you can also see a two-color rifle and radiation detector that I picked up. The Bigfoot: The Primal Pursuit set was limited to 25, and debuted at Toylanta. He may have some left in stock, so head over to the Facebook page in the link above and check out his stuff.
What can I say about Cotswold Collectibles that hasn’t already been said? It’s always great seeing Greg Brown, and it’s really cool because I was buying stuff from Cotswold for twenty five years and from Greg for fifteen years before I ever had the chance to meet him in person. This company has been carrying the 1/6 scale collectors hobby through feast and famine, and they’re pioneering new ways to bring customizers together to create and collaborate on the cool new projects that Hasbro can’t be bothered to consider.
I always get a ton of stuff from Cotswold, and you can see that I have some custome flocked heads, spare bodies, 3 D printed goodies from Sean Huxter and cool 1/1 scale “dogtags,” among other coolness.
Of course I went back to the Cotswold booth to pick up some goodies from Rob Humprhey and Firebase Ryan, for future diorama use…
I’m going to wrap up this PopCulteer here, even though I have a few more of my ToyLanta goodies to share with you. It’s getting a bit late in the day, and I have more ToyLanta posts and videos to work on. Please check back for our regular features and listen to our sister internet station, The AIR, where you still have a few more chances to hear Radio Cult’s ToyLanta concert on Radio Free Charleston International.
You picked up some great stuff from Joelanta… as usual. Thanks for posting pictures of your scores.